Business & Investment

Expect more active oversight of the student loan industry under President Biden

Mr. Trump’s appointed director of the Consumer Financial Protection Bureau, Kathy Kraninger, said Wednesday that he would resign at the request of US President Joe Biden.

“Today, at the request of the Biden administration, I have resigned as director of the CFPB,” she said. “I’m proud of everything I’ve achieved on behalf of the consumer. It’s an honor to lead an agency during these difficult times.”

Locht Chopra, now a member of the Federal Trade Commission, is widely expected to return to the CFPB, which helped establish with Warren after the 2010 Dodd-Frank Financial Reform Act, but this time only as a director. .. He previously worked as a student loan ombudsman for the bureau.

The Democratic Chopra’s appointment shows Biden’s much tougher stance on Wall Street than the Trump administration faced.

The CFPB has been controversial since its inception. Initially proposed by Senator Elizabeth Warren, then a professor at Harvard Law School. In 2007After being founded in the wake of the financial crisis, the institution has become the target of many Congressional Republicans.

The controversy was evident in the agency’s approach to the student loan industry over the past few years. During the Obama administration, the CFPB actively monitored student loan servicers, lenders, and companies in other sectors, sued large companies, and highlighted alarming trends through reports based on borrower complaints and other sources. ..

During the Trump era, the CFPB shifted its enforcement attention from major space companies to fraudsters.Agency Skip student loan related reports, In some cases just publish them Under pressure..

That change in attitude gave Seth Flotman, the then student loan ombudsman of the agency. Resigned in protest in 2018.. Currently, the Secretary-General of the Student Borrower Protection Center, advocacy groups, Flotman and others are hoping for a dramatic change in the agency’s approach to the student loan industry under the Biden administration.

According to Frotman, the CFPB has “a very powerful tool for confronting student loan borrowers,” including enforcement measures, regulation development, complaint monitoring, and regular monitoring of student loan companies.

“We have seen how the current administration has pulled back all of them,” he said. “A station with the right people on the first day has the authority to use all these tools almost immediately.”

Increased enforcement

The agency is back under Richard Cordray, who was nominated by then-President Obama to run the CFPB and resigned in 2017. Over $ 750 Million For student loan borrowers. These efforts were part of a complaint from a borrower that helped regulators focus on awkward practices, according to CFPB reports during that period.

In addition, the Obama-era CFPB filed a proceeding in the field of student loans. Student loan servicer navigator
The company accuses the borrower of making it unnecessarily difficult to repay the loan — the company claims Says wrong (They moved to dismiss the proceedings) — and For-profit university About their private loan program.

During the Trump administration, the CFPB has settled with companies accused of misleading borrowers to pay assistance in enrolling in a federal repayment program.But the agency becomes an executive Pay a small amount Of the amount they were accused of illegally charging student loan borrowers.

“I think the bureau tends to go back in the direction it was when I was the director and the Obama administration was in place,” Cordray said in an interview. “This approach was a close collaboration between the CFPB and the US Department of Education. It was all resolved when Betsy DeVos took office.”

Ministry of Education The memorandum has ended In 2017, it became possible to share information about borrower complaints between the two institutions.The institution has reached a new agreement Earlier this year..Under the Obama administration, the institution Worked together About creating guidelines for student loan servicers.

Vaishali Rao, a partner at Hinshaw & Culbertson, a law firm that represents student loans and other consumer finance companies in regulatory investigations and proceedings, said he hopes the Biden-era CFPB will step up enforcement.

“There will be many places where the pen is placed and people are ready to get it back,” Lao said.

In addition to investigations and enforcement measures, these areas may include a rekindling of efforts to develop a set of student loan service guidelines at the federal level that began towards the end of the Obama administration. Mr Lao said. Since then, Some states have developed their own rules To regulate student loan companies.

“The industry has now lived in these state laws for a period of time,” Lao said. “It may be easier to achieve that on the front lines of federal government.”

Strengthening cooperation with state regulators

For the past few years The battle has been fought Among the Ministry of Education, state regulators, and student loan servicers who have the authority to regulate these companies. Secretary of Education Betsy DeVos takes the position that these companies are not subject to state law, partly because they are federal contractors. This is the argument cited by the company in the proceedings.

Possibly new Ministry of Education You can undo the note Summary of DeVos discussion. In addition, the CFPB under Biden may work more closely with state regulators that monitor student loan companies through their own legislation.

“The Biden administration was able to end these tactics immediately,” Flotman said of the Trump administration’s militant approach to state student loan regulation.

Under Cordray, the former Attorney General of Ohio, the CFPB “cooperated closely” with state regulators to “strategy on what to do and how to do it, not just individual issues.” “. However, under the Biden administration, “the policies are very likely to be very similar” to the Obama administration.

Still, even though the Biden administration is taking a more supportive approach to state regulators, Mr Flotman said he wants state legislatures and officials to continue to focus on student loan surveillance. These stakeholders are often some of the first to recognize the nasty trends of various consumer markets.

“One of the reasons we got into turmoil was that people saw student debt for so long that Washington caused this turmoil and Washington said it should be fixed.” Flotman said.

Coronavirus related remedies

Payments and collections are currently suspended for most federal student loans, and the freeze will expire on December 31st. Prompted policymakers Extend the suspension given that the underlying economic impact of the pandemic is still ongoing. The suspension, which was included in the CARES Act, a coronavirus bailout bill, was originally scheduled to expire on September 30, but was extended by former President Donald Trump.

The CFPB is responsible for monitoring fallout, regardless of when the suspension was lifted. This is the first time the government and its contractors have shut down and eventually restarted the entire student loan system, which has proven to be complex.

Borrowers have seen credit scores unintentionally fade as a result of suspension of payments. Their wages were still adornedDespite the Moratorium, among other challenges. Proponents said that when payments resumed, borrowers, especially those whose economic conditions changed during the pandemic, Face administrative hurdles To keep their debt manageable.

One area where the Obama-era CFPB engaged in active monitoring of student loan servicers was registration for income-driven repayment plans. This is a government-sponsored program that allows borrowers to repay their debt as a percentage of their income. This is a process that borrowers are likely to face challenges when student loan payments are resumed.

Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, said: Relief when that happens.

“It’s the regulator’s job to turn their feet on fire,” she added.

Mr Lao said he hopes the suspension will continue under the Biden administration. This gives new CFPB staff time to think about student loan service priorities because “there is no immediate evacuation drill for overpaid borrowers.”

If the suspension is extended for a long period of time, Mr Lao said he expects to cause confusion among borrowers as to whether it makes sense for borrowers to continue paying during this period. Obviously, many borrowers who have lost their jobs are either dealing with unexpected medical costs or unable to pay for other reasons. For them, pausing is a welcome remedy.

But those who can move forward towards mortgage repayments during this time are likely to question whether it is in their best interests, Lao said. Lao anticipates these questions and counseling clients to contact the borrower and about them. She suspects that the CFPB needs to provide guidance or otherwise support its efforts.

In addition, if the Biden administration proceeds to cancel any student debt, President-elect Proposed $ 10,000 emissions Some supporters and Democratic leaders urged him to cancel more, but said the ratio of student debt to all borrowers on the campaign trail — Lao expects bureau staff to be involved. ..

Cancellations by government or parliamentary action will ultimately be carried out by the Ministry of Education, but given the small number of people with deep knowledge of student debt, “they will be seeking bureau guidance.” She said. ..

“Cancellations of all kinds require so much interaction between the industry and the borrower that the student loan ombudsman is really at the center of it,” Lao said.

Industry surveillance during renewal

The Federal Department of Student Assistance of the Ministry of Education is currently renewing the contract between the institution and the company, which is the borrower’s primary contact for repayment of student loans.

The future of that effort, which may take years, is at a loss, but once a new contract is signed, some companies that are currently working with borrowers may no longer be part of the new system. Yu said regulators like the CFPB want to closely monitor student loan companies during this transition.

“Many servicers are about to quit their jobs, so what does that mean for their performance?” Yu said. “What does that mean for borrowers who have loans with those servicers in the period before the contract is canceled or canceled?”

— Jacob Passy contributed to the report.

Expect more active oversight of the student loan industry under President Biden Expect more active oversight of the student loan industry under President Biden

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